Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Tuesday, September 30, 2014

I am off to
Lancaster PA to learn how to prepare my PA corporation’s state income tax
return.I will return with a Friday
BUZZ.

* The October
“issue” of THE TAX PROFESSIONAL will be up early tomorrow morning.It has some more food for thought for tax
preparers, and I would appreciate hearing your comments on the topics
discussed.You can email them to rdftaxpro@yahoo.com with “THE TAX
PROFESSIONAL” in the “subject line”.

I am also
interested in your comments on topics discussed in previous “issues”.

* Kay Bell is a
much better source of reliable information on the tax indiscretions of the
brain-dead reality tv show “star”.In
her BANKRATE.COM post “Bad Tax ‘Situation’ for Reality TV Star” Kay tells us –

“The feds charge that the Sorrentino brothers
knowingly provided their accounting firm with false information, which was used
unbeknownst to the paid preparers, to file incorrect tax returns.”

In this “situation”
I tend to believe the Feds regarding the paid preparers.

“We all know the old adage used when
discussing tax-filing software: Garbage in, garbage out.

It also applies to taxpayer-tax preparer relationships.
If a taxpayer isn't honest or forthcoming about his or her tax circumstances
when working with a tax pro, then that preparer is going to complete and submit
a 1040 that's flat-out wrong.

And that creates problems for both the taxpayer and the
tax preparer.”

It seems that one of the Unreal Skanks of New Jersey, and her husband, were –

“. . . named in a 41-count federal indictment that charges them with, among other things, lending fraud involving fake W-2 forms, false income amounts and hidden assets. Joe also was charged with failure to file federal tax returns. The pair also faces a variety of New Jersey state charges.”

If they go to the slammer (my fingers are crossed) it will be no great loss.

* And another so-called “reality tv” participant, one of the brain-dead “stars” of the steaming pile of excrement that was known as “The Jersey Shore”, is also in tax trouble in New Jersey.

“Former ‘Jersey Shore’ cast member Mike Sorrentino has been accused of not properly paying taxes on $8.9 million in income, authorities said.

Sorrentino and his brother, Marc, are due in federal court in Newark this afternoon after being indicted on charged they filed false income tax returns from 2010-2012, U.S. Attorney for New Jersey Paul J. Fishman announced.”

It seems stupidity is a Sorrentino family trait.“The Situation” was on a reality tv show – so we know he had minimal intelligence.

Perhaps the biggest crime in this “situation” if the fact that the fool had $8.9 million in income!It appears that you do not have to contribute a single thing to society, or have any real value, to become a millionaire - you just have to act like the idiot you are on television.

“Savvy tax planning is about more than knowing what to write off. Just as essential is knowing when to take deductions. Choosing to stuff deductions into one tax year as opposed to another bears directly on how much winds up with the IRS. Advancing or postponing those payments by only a day at yearend can save plenty of moola.”

“Apparently a very small percentage of folks actually took advantage of the online version of these statements (primarily my client base, I’m guessing). As a result of this and apparent feedback from customers, advocates and Congress, Social Security is resuming the physical delivery of paper Social Security Statements.”

Jim adds –

“You can still receive a Social Security statement from the online system at any time, as often as you wish. This is accomplished by going to the address www.socialsecurity.gov/myaccount. Just keep in mind that you will not receive a mailed paper Social Security statement thereafter once you’ve signed up.”

* Having you been following the “Back To School” post series from Kelly Phillips Erb, FORBES.COM’s TaxGirl?Click here.You could win a prize!

“The direct contact provisions of Internal Revenue Code Section 7521 generally require IRS personnel to stop a taxpayer interview whenever a taxpayer requests to consult with a representative, and prohibits IRS personnel from bypassing a qualified representative without supervisory approval once a taxpayer authorizes one to act on his or her behalf and informs the IRS of that authorization.”

And –

“TIGTA recommended that the IRS ensure that consistent guidance is provided in the Examination sections of the Internal RevenueManual, detailing the procedures for allowing taxpayers adequate time to obtain representation and for documenting case actions.”

“Checks worth $350 are being mailed out this week to more than 1 million residents who have kids and should hit mailboxes in the coming days, the state Department of Taxation and Finance confirmed Wednesday.

The $350 checks will go to people who had a child under 17 as of 2012 and with household adjusted gross incomes between $40,000 and $300,000. The checks should hit mailboxes within a week, the state said.”

And a “second check for property taxpayers will go out throughout October. It will refund residents for this year's growth in school property taxes if a district stayed within the property-tax cap, which limited the growth to less than 2 percent. School taxes were due this month.”

Wednesday, September 24, 2014

As it does every year at this time,
the IRS has issued the special “per diem rates” for meals and incidental
expenses and lodging to use in lieu of claiming actual expenses when deducting,
or being reimbursed for, the costs of an overnight business trip for the fiscal
period October 1, 2014 – September 30, 2015.There appears to be no change from the prior period rates.

Under IRS Rev Proc 2007-63
self-employed taxpayers and employees claiming unreimbursed employee expenses
cannot use the per diem for lodging.
They can only use the meal and/or
incidental expense per diems, and must claim actual lodging expenses.The lodging per diem is only for employers
reimbursing employees for business travel.

The minimum per diem for “meals and
incidental expenses”, for all locations without specified rates, remains at $46.00.

Business travelers who do not incur
meal expenses on business trips can continue to deduct $5 per day for “incidental”
expenses only.This rate applies for any
CONUS or OCONUS locality of travel.Incidental expenses include fees and tips to porters, baggage handlers, and
hotel staff.Transportation to meals,
laundry, lodging taxes, and telephone calls are not included in incidental
expenses and can be deducted separately.

These per diem rates are based on
the city where you “lay your head” at night.If your business meeting is in New York City, but you stay overnight at
a hotel in New Jersey to get a lower room rate, you would use the city or
county in New Jersey to determine the appropriate per diem amount.

You can choose to deduct either the
actual expenses or the government per diem rate.You can decide whether to deduct actual
expenses or the per diem allowance on a trip-by-trip basis, but you must use
the same method for all days within a single business trip.If you elect to use the per-diem allowance
you can claim 75% of the per diem amount on the first and last day of the trip.

I recently attended the NATP Tax
Forum in Atlantic City NJ.The per diem
for Atlantic City is, and remains, $66.00.I kept track of my actual meal expenses during the trip, which totaled
less than $200.00, and I did not incur any “incidental” expenses.I arrived in AC on Tuesday and left on Friday.3½ days (Wednesday and Thursday = 2 days, and
Tuesday and Friday = 2 days @ 75% = 1½ days) at the per diem rate of $66.00 is
$231.00.Obviously I will claim the per
diem rate.As an added bonus, by doing
this I do not have to save receipts for my meals.

The special meal and incidental
expense per diem rate for taxpayers in the transportation industry - employees or
self-employed taxpayers whose work directly involves moving people or goods by
airplane, barge, bus, ship, train, or truck and requires the worker to travel
away from home to areas with different federal per diem rates during any one
trip - remains $59 for any locality of travel in the continental United States
(CONUS) and $65 for any locality of travel outside the continental United
States (OCONUS).If a transportation
worker elects to use these special per diem rates they must be used for the
entire calendar year.

Of course only 50% of qualifying
business meals (including the per diem for meals and incidental expenses) are
deductible, regardless of which method you choose.

“If you itemized your deductions on your
federal tax return last year and you claimed a deduction for State and Local
Taxes, then you need to figure the taxable portion of your state refund.”

And -

“However, if you claimed the standard
deduction on your federal tax return last year, your state tax refund is not
taxable. State refunds are also not taxable if you deducted state and local
sales tax instead of state income tax on last year's federal return.”

I have always said
that (unless you are a legitimate day trader) if you need to check the stock
market every day to see if it went up or down you should not be in the stock
market.I have a client who had
stock-market based annuities and used to check the market every day and moan about
losing money every time it went down a few points.Luckily she got out of annuities and I eventually
hooked her up with a good honest broker.

The answer to the
question “If someone has a 401(k) with
pre and post-tax money, can they take a distribution and roll (convert) just
the post-tax money to a Roth IRA tax-free, while rolling the remaining pre-tax
money over to a traditional IRA?” is now YES.

Monday, September 22, 2014

A new amnesty-like program for
delinquent taxes in New Jersey reminded me of a recommendation I made back in
2008.

The Internal Revenue Service often
cannot collect outstanding liabilities because taxpayers can't afford to pay
them. Taxpayers cannot afford to pay the
balances because of the substantial accrual of penalty and interest.An initial outstanding tax liability of
$5,000 could easily mushroom to $15,000 over a period of years.The result in many cases is that the IRS ends
up writing off most or all of the amount due after the 10-year collection
period has passed.

Obviously the IRS cannot permanently
remove penalties and interest.If they
did taxpayers would have no motivation to file and pay their taxes on time.

The answer lies in a one-time
temporary Federal Tax Amnesty, similar to state tax amnesty programs that have
been highly successful in the past (a 2013 Tax Amnesty Program in Connecticut
generated between $175 -$180 Million in collections).Such a program would –

·generate
millions, if not billions, of dollars for the government,

·allow
taxpayers to get rid of the IRS cloud from over their heads,

·permit
the IRS to "close the books" on overdue
accounts, and

·encourage
the filing of delinquent returns.

So everyone wins!

Here is how a Federal Tax Amnesty
Program would work -

The amnesty would apply to all
federal tax liabilities from, say, tax year 2001 through the current year –

* Individual income taxes, the
Alternative Minimum Tax, and the various "other taxes", such as
self-employment tax, included on the Federal 1040.

* Corporate income taxes and the
corporate AMT.

* Payroll Taxes.

The IRS would begin with the
original outstanding tax liability only - no accrued interest and penalties
would be included - on all previously filed federal tax returns that are not
currently part of a criminal prosecution.From this they would apply all appropriate amounts to date from direct
taxpayer payments, “garnishments” of wages, bank accounts, and federal and
state tax refunds and rebates, other federal offsets, etc. against the open
liability.None of these payments would
be applied against previously assessed penalty and interest; they would all be
used to reduce the original “principal”.

Taxpayers would have 3 to 6 months
from the date of the initiation of the Amnesty program to pay the net
outstanding tax liability, or perhaps to set up an installment payment agreement,
without any penalties or interest.

At the same time individuals,
corporations and other businesses who have not filed certain income, payroll or
other tax returns could do so during the amnesty period and pay only the tax
due, with no penalty or interest assessment.So if you did not file your 2009 (or 2005 for that matter) Form 1040 (or
appropriate business or payroll return) at all because you owed $2,000, you
could do so now and pay only $2,000.

The IRS would mail to all delinquent
taxpayers an itemized “bill” for the outstanding tax due under Amnesty based on
their records, so it would be clear just what needed to be paid.Taxpayers would have the opportunity to
dispute the amount of the bill if they felt it is incorrect.

If an open tax liability is not
satisfied in full or a delinquent return is not filed during the Amnesty period,
or if the taxpayer defaults on an agreed upon installment payment arrangement permitted
under the Amnesty, a higher penalty and/or interest rate would apply to the
remaining outstanding balance – a further incentive to pay up during the
program.

This would be a one-time only
offer.The legislation creating the
Federal Tax Amnesty Program could so state by forbidding any future Amnesty
programs.Or it could state that the
federal government would not be able to institute another Amnesty Program
during the twenty years after the end of the current amnesty period.

The idiots in Congress have considered a Federal
Tax Amnesty Program in the past.But a Congressional
Joint Committee on Taxation report concluded that amnesty would ultimately
hinder tax collection and reduce net revenue.The report suggested individuals would become less likely to pay their taxes
in future years because of expectations that government would once again write
off interest and penalty fees under another Amnesty.

I don’t agree.The concerns expressed by the JCOT regarding
reduced payment in anticipation of a future amnesty have not proven to be a
problem with past state programs.And
this would be advertised as a one-time only offer, as per the text of the
legislation.

IRS collection activity would not
cease or slack off once the initial program has completed in anticipation of
future amnesties. If anything the Service should be more aggressive in its
collection efforts after the amnesty period ends as there would be
substantially less “targets”.

Tax Amnesty is aimed less at tax
cheats and more at honest Americans who have been so overwhelmed by the accrual
of interest and penalties that they walk away from their tax debt
altogether.And it will help to bring
taxpayers who have, for one reason or another, not filed past returns back in
the system and become current.

Sunday, September 21, 2014

I live on US Route 6 (aka the Grand
Army of the Republic Highway) in Northeast PA.And many of the places to which I go for business and personal errands in
Pike and Wayne counties are on Route 6.

I learned last year that Route 6
runs the entire length of the State of Pennsylvania, beginning at the New York
border in Matamoras and ending at the Ohio border in Meadville.And while on my recent trip I learned that
Route 6 actually runs coast to coast, from Bishop CA to Provincetown MA, and at
one time was the longest highway in the US.It covers about 400 miles in PA and 3,200+ miles cross-country.

Last year I decided that I would
travel the length of Route 6 in PA and visit the various sites along the way.The route has mile-markers throughout its PA
run, beginning at 00 at the Ohio border and ending at 400 at the NY
border.I live just before mile marker
368.Earlier this year I visited
Scranton (near mile marker 332), and last week I visited Wellsboro (near marker
221).I chose Wellsboro because the
Grand Canyon of PA.

I set out on Route 6 West Saturday
morning, having just returned from Atlantic City on Friday afternoon.Unfortunately it rained during the entire
trip, stopping just before I arrived at my destination, the Penn Wells Hotel on
gas-lit Main Street in downtown Wellsboro (bigger than downtown Hawley but
smaller than downtown Honesdale), so I could not partake of the beauty of the
scenery on the way out.Luckily the sky
was bright and clear, and traffic was minimal, on my ride home on Tuesday, so I
was then able to take in and appreciate the beauty of nature driving through
the mountains of northern PA.

Just a few feet off Route 6, on PA
Routes 660 and 287, the Penn Wells Hotel, one of Wellsboro’s most historic
landmarks originally built in 1869, is truly an “old-fashioned” venue, which is
why I chose it. The current building, restored
in the 1920s, has 73 character-filled guest rooms of varying sizes and types.I had a cozy but comfortable room on the
first floor (actually the second - above the lobby).There is free high-speed wifi in all of the
guest rooms.

Off the lobby are the Mary Wells
Room open for lunch and dinner Monday through Saturday and brunch (with live
piano music) and dinner on Sunday, and the Penn Wills Lounge. I was surprised to find that there was a public
pay phone in the lobby (a true rarity these days).

Guests receive a complimentary full
hot breakfast Monday through Sunday in the dining room, and a discount on the
Sunday brunch charge.I had all my meals
(except Saturday night on the train – see below – and lunch Saturday across the
street at Café 1905 located inside Dunham’s Department Store) at the hotel
- the food and service was impeccable.

Hotel guests are also welcome to use
the indoor pool and fitness center, travel market, business center and guest
laundry facilities of the more modern 89-room Penn Wells Lodge, two blocks down
Main Street and actually on Route 6.

Wellsboro was founded in 1806 as the
county seat of Tioga County, and “incorporated” in 1830.It is named for Mary Wells (no relation, I
expect), wife of Benjamin Morris, who purchased the land on which the town was
built in 1802.

I did it right this time, and booked
my activities in advance online, except for Monday’s which I booked online
while at the hotel.

Saturday night was the dinner ride
on the Tioga Central Railroad’s Broadway Limited – an extended excursion
through the PA countryside from Wellsboro Junction (3 miles north of downtown
Wellsboro on RT 287) past Hammond Lake to Tioga and back.We left at 6:00 PM and returned about 8:15
PM.I chose the turkey dinner and
strawberry shortcake, which was delicious.The stuffing was especially good, and the chef gave my table companions,
a couple from nearby upstate NY, his special recipe while walking through the
dining car after dinner gathering praise.The cost of the all-inclusive dinner was included in the price, with
only beer and wine being extra.

The railroad was built in 1872 to
carry coal.It still maintains regular
freight service between Wellsboro and Corning NY.Tioga Central Railroad offers several
excursion options from the end of May through October, with a special Santa
Express in November and December.

Sunday’s activity was a matinee
performance of A R Gurney’s THE DINING ROOM by Hamilton-Gibson Productions, a
community performing arts organization that began in 1991, at the Warehouse
Theatre, on Central Avenue just off Main Street two blocks from the hotel.The show, and cast, was great.

Prior to the show I read my mystery
book sitting in the public square known as “The Green” (where I also found a
public pay phone) across the street from the county courthouse,

Monday I had planned to visit Pine
Creek Gorge, aka the Grand Canyon of Pennsylvania, which stretches for over 45
miles with depths of nearly 1500 feet.It is part of the Tioga State Forest.I originally intended to drive to the gorge and the various scenic
vantage points (I am not a hiker), but learned about “Ole Covered Wagon Tours”
via a brochure from the display rack in the hotel lobby and booked the 12:30 horse-drawn
wagon ride through the canyon.

The 2-hour round trip ride, with an
Amish driver (very few others are still trained in “driving” horse-drawn
vehicles) began at a family-run farm in Ansonia and took the eight of us along
the Pine Creek Rail Trail and back, with colorful commentary on the history of
the area and its logging days from our guide.The guide pointed out that every component of the trip was made in
America, except for the public-address system on the wagon, which was made in
China.It was the only thing that did
not work properly.

I am sorry now that I did not schedule being in the area on a Wednesday, as "Ole Covered Wagon Tours" offers a longer "Wednesday Waterfall Ride" to Little Four Mile Falls.

It was a wonderful, practically
perfect, trip, with many of my favorite vacation components – a scenic drive
(and rides), an historic old-fashioned hotel, theatre, a train ride, relaxation,
and great food and drink.I look forward
to another trip along Route 6 in PA next year.

I agree with Jason’s
answer - “there will ALWAYS be a need for
tax preparers and accountants”.

Jason correctly
points out -

“Anyone can prepare their own taxes.
Businesses can, too. The software will accept whatever the user puts into it …
but it doesn’t mean it’s done correctly.”

And -

“. . . business owners can keep their own books but it
doesn’t mean they’re doing it right.”

Remember – garbage
in, garbage out.

And more important,
when it comes to a business owner doing his/her own bookkeeping using software
–

“. . . once a business reaches a certain
size, keeping the books will become a big drag on the owner. No software
solution can overcome the crunch of time.”

I do not, however,
share Jason’s concerns for the “tax-preparation
business that relied on preparing a high volume of simple tax returns”.

Regardless of how
easy it may become to submit a basic tax return, there will always be taxpayers
who don’t want to be bothered doing it.And, of course, those who want to make sure they do not miss anything.

I have always said
that if I did nothing but 1040As all day during the tax season, I would make
more money, experience less agita, and substantially reduce the number of
extensions.

“According to the IRS, filing taxes will take
taxpayers an average of 8 hours and cost $120 for each nonbusiness return.”

The post also
points out that the number of pages in the CCH Standard Federal Tax Reporter
has more than tripled (almost quadrupled) since I began preparing 1040s in 1972
for 1971 – from less than 20,000 to more than 70,000!

Josh’s obvious
bottom line –

“A simpler, transparent tax system can
greatly reduce the cost of compliance for U.S. taxpayers. A complicated tax
system creates not only a huge time and money expenditure for taxpayers, but
also for government officials verifying returns, which can lead to higher tax
burdens later.”

“15 states and the District of Columbia
impose an estate tax. New Jersey exempts the lowest level of money from estate
taxes ($675,000) while Washington imposes the highest estate tax rate (19%).
Both New Jersey and Maryland also impose an inheritance tax.”

“The Division of Taxation will send letters
to individuals and businesses who have unpaid New Jersey tax liabilities from
tax periods 2005 through 2013. The Division is offering interested taxpayers an
easy way to resolve those outstanding tax liabilities and reduce or even
eliminate their accumulated penalties and fees — if they pay the full amount
due by Nov.17, 2014.”

If you do not
receive a letter you can visit a Regional Office or call the DOT to discuss
reduced payments.

* BARBARA’S BLOG
asks “What Does the IRS Have Against Food?”.The post does a good job of summarizing many of the rules for businesses
concerning deducting meals as a tax-free benefit to employees.

I am a bit
confused.The map shows the NJ sales tax
as 6.97% when it is actually 7%, and the PA tax as 6.34% when it is actually
6%.I am not aware of any local sales
tax in PA.

THE FINAL WORD:

I have received
many “friend” requests over the past few months from clients, colleagues,
actual friends, and readers.I have not
accepted any.

This does not mean
I do not want to be your “friend”.I do
not want to be anyone’s “friend”.Please
do not be hurt or offended by my rejection of your request.

I once vowed that I
would never join MY FACE or SPACEBOOK or any other such “social media” site
(other than TWITTER).I did not, and still
do not, see the need to make my personal life and details available to the
great unwashed.If I want to share
updates, stories, and pictures with friends and family I will send them an
email.You will notice that there is
absolutely no personal information on my SPACEBOOK page, other than a picture
of my cat.

Since I no longer
solicit, or accept, any new tax clients I do not need to use SPACEBOOK as a
marketing tool.

The one and only
reason I joined SPACEBOOK was to be able to participate in a closed “group”
consisting of members of the NJ chapter of the National Association of Tax
Professionals.

Wednesday, September 17, 2014

Here are
some items of interest or note that were discussed in the educational sessions
at last week’s NATP Tax Forum in Atlantic City.

·THE
AFFORDABLE CARE ACT – INDIVIDUALS AND BUSINESS

These 2
sessions were the most popular of the Forum.They were probably attended by every registrant.Perhaps they should have been offered
together in one “general session” on the first day.

If there
was ever any question these sessions verified the fact that, while the basic
concept of “Obamacare” – attempting universal health insurance coverage without
resorting to UK-like “socialized medicine – is sound, the Affordable Care Act
(ACA) is without a doubt a complex and convoluted mucking fess.Like the Earned Income Credit, and the
distribution of other government social benefits, the administration and
enforcement of ACA does NOT belong in the US Tax Code!Like the excessive due diligence requirements
for claiming the EIC, the ACA causes tax preparers to become Social Workers.

The
“individual mandate” for health insurance coverage took effect in 2014.If you and your family did not have
“ACA-compliant” health insurance coverage, via either an employer-provided plan
or direct purchase, for all of 2014 you may be subject to a penalty.This penalty is not easy to calculate and
could be expensive.

However
many taxpayers who were not properly covered for all of 2014 may be exempt from
the penalty under the “individuals who cannot afford coverage“ exemption.This exemption applies of the cost of
“ACA-compliant” health insurance is more than 8% of the modified Adjusted Gross
Income of the “household”.

Individuals
who acquired insurance via the Obamacare Marketplace and were granted an
“advance premium credit” to reduce the monthly out-of-pocket premium payment will
be issued new IRS Form 1095-A.Related
IRS Forms 1095-B, issued by insurance providers, and 1095-C, issued by
employers, are not required to be sent to taxpayers for 2014.But the instructor believed that many
insurance providers will be issuing Form 1095-Bs for 2014.

And only
those who acquired insurance through the Obamacare Marketplace, and receive a
2014 Form 1095-A, will be eligible for a “premium tax credit”.The amount of the advance credit applied to
the premiums, which was based on anticipated 2014 income, will be reconciled to
the credit to which the taxpayer is entitled using actual 2014 income on the
2014 Form 1040, and excess advances are paid back, any additional credit is
applied to tax liability and can be “refundable”, or one can “break even”.

The
“employer mandate” does not take effect until 2015 or 2016, depending on the
total number of employees.

·NEW
DEVELOPMENTS – INDIVIDUALS AND BUSINESS

There was
a separate session for each.However,
with the exception of the ACA-related items, discussed in more detail in
separate sessions (see above), there have been no new developments.

The 2 “New
Development” sessions listed the various temporary tax items that expired on
December 31, 2013, and have not yet been extended.Many items, in both categories, will probably
be extended, but not until after the November elections.So, once again, there will no doubt be delays
in the 2015 start date for IRS processing of 2014 income tax returns.

One of the
business items that is currently in limbo concerns pre-tax treatment of
employer-provided mass transit employee benefits.There is a good chance this will be extended
at year end, and I expect that I will need to once again deal with a few
corrected W-2s sent to clients in late spring, resulting in amended returns, as
I did a year or so ago.

In the
Individuals session we were told that a net Schedule D loss can be used to
reduce net investment income subject to the Net Investment Income Tax
(NIIT).Apparently when the NIIT was
taught by NATP last year it was stated that this could not be done.

·PARTNERSHIPS:
SELF-EMPLOYMENT TAX AND GUARANTEED PAYMENTS

A partner,
whether general or limited, can NEVER also be an employee of a partnership
entity.A partner should NEVER receive
both a K-1 AND a W-2 from the same partnership entity.A partner NEVER receives a salary; he/she may
receive a “guaranteed payment” from the partnership, regardless of the amount
of profit or loss, in exchange for services provided to the partnership, which
is a deductible item for the partnership (and reduces net taxable income or
increases the net deductible loss passed through to partners) and reported on
the Form K-1 of the partner receiving the payment.

In the
past I have on at least two occasions had a client give me a K-1 and a W-2 from
the same partnership entity.On these
rare occasions the Form 1065, and Form K-1, for the partnership and the W-2
were prepared by a CPA firm.

Included
in the guaranteed payment to a partner reported on Form K-1 can be health
insurance premiums paid by the partnership for the partner’s individual or
family coverage.This is included in the
income of the partner reported on Schedule E Page 2, and is deducted out as a
“self-employed health insurance deduction” adjustment to income on the bottom
portion of Page 1 of Form 1040.So for
income tax purposes it is a wash.However, because the insurance premium payment is included in
“guaranteed payments” it is subject to self-employment tax.

This is different
to the treatment of health insurance premiums paid for a more than% owner of a sub-S corporation who is also
an employee.The premium payments are
included in Box 1 or Form W-2 and deducted as an adjustment to income.However these payments are NOT subject to
FICA tax and are not included in wages reported in Box 3 or Box 5 on the W-2.

·HELPING
DELINQUENT TAXPAYERS

If you owe a substantial amount of
back taxes to the IRS or state tax authorities NEVER contact an agency that
advertises on television, whether or not the ad actually says they can get you
“off the hook” for “pennies on the dollar”.Contact an independent tax professional.If they do not personally deal with collection issues they can refer you
to a legitimate source that does.To be
honest, this is my personal advice and not that of the seminar leader.

·NET
INVESTMENT INCOME TAX (NIIT)

The session attempted to make the
attendees “NIIT wits”.

This component of ACA began with
2013 returns, and had impacted a few of my clients.Luckily the investment income of these
clients was limited to interest, dividends, and investment-related capital
gains so the income subject to the tax was easily identified.

The NIIT is a “surtax” because it is
a tax on income that has already been taxed.It is a tax that is in addition to the regular income tax and the
dreaded Alternative Minimum Tax (AMT).It has no impact whatsoever in the calculation of the dreaded AMT.

The actual legislation creating the
NIIT was only 2 pages long, but those 2 pages have generated about 270 pages of
IRS regulations so far, most of which was first published on 12/13/13.Because of the “newness” of the tax there is
much of its application that has not yet been decided by the IRS and areas of
it are subject to interpretation.

The NIIT income thresholds at which
the surtax kicks in - $200,000 if “unmarried”, $250,000 if married filing
jointly, and $125,000 if married filing separately - are fixed and are not
indexed for inflation.So it will affect
more and more taxpayers each successive year as incomes grow.

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AIN'T THAT THE TRUTH!

DONALD T RUMP HAS NOT DONE A SINGLE THING THAT IS "APPROPRIATE" OR "ACCEPTABLE" FOR A CANDIDATE OR A PRESIDENT SINCE THROWING HIS HAT INTO THE RING.EVERY SINGLE DAY TRUMP PROVIDES MORE PROOF THAT HE IS AN IGNORANT, SELF-ABSORBED, UNFIT, MENTALLY UNSTABLE IDIOT, AND A DEPLORABLE AND DESPICABLE HUMAN BEING.TRUMP MUST BE REMOVED FROM OFFICE FOR MENTAL INCOMPETENCE ASAP! PLEASE READ AND SHARE THIS - THE TRUTH ABOUT TRUMP'S MENTAL CONDITION

Donald T Rump has not done a single thing that anyone with intelligence would consider “appropriate” or “acceptable” for a President since deciding to run for office.

Every single day Trump provides more proof that he is an ignorant, self-absorbed, unfit, mentally unstable idiot, and a deplorable and despicable human being, who must be removed from office ASAP.

VERY IMPORTANT -

(1) Before contacting me with questions about how a blog post relates to your specific situation, please be aware that I do not give free tax advice to non-clients by e-mail, comment response, or phone. So don't waste your time and mine.

(2) I am winding down my tax practice, and I will not, under any circumstances, accept any new clients. Period. I am actually trying to "thin the herd".